The Canadian economy contracted at a 3.4 percent annual pace in the second quarter, an improvement from the first three months of the year, the government said Monday.

Statistics Canada said the economy actually grew in June, the first monthly increase in almost a year. Canada's central bank and many analysts think the economy is starting to grow again in the current quarter.

The 3.4 percent drop in gross domestic product for the April-to-June period follows a the biggest drop on record in the first three months of this year. The economy plunged at a revised annual rate of 6.1 percent in the first quarter. The drop was previoulsy reported as 5.4 percent. Statistics Canada data dates back to 1961.

The U.S. has had fourth straight quarters of decline while Canada has had three. Economists have said Canada entered the downturn later than other countries and that Canada's performance typically lags the U.S. by six months. Canada and the U.S share the largest trading relationship in the world. More than 70 percent of Canada's exports go to the U.S.

Royal Bank Chief Economist Craig Wright said June's positive number is in consensus with the view that the worst is behind Canada.

"The scariest point of the global economic picture was some time between September and October of last year. At that point it was more or less just hope that kept you from forecasting a depression or something quite scary," Wright said. "What we're seeing now is that the extraordinary events were met quite aggressively with extraordinary initiatives around the globe and that's shoring up confidence."

Wright said Canada is well positioned to accelerate out of the recession.

"We've never viewed this as a made-in-Canada recession. A number of factors pushed Canada into recession including the global financial crisis, but also the weakness we saw earlier in commodity prices and of course the weakness in the U.S., our major trading partner, dragged us down as well," Wright said.

John Baird, Canada's transport minister, said the growth in June shows Canada's stimulus package is working and warned that now is not the time for an election. Canada's opposition parties are threatening to topple the minority Conservative government in a no confidence vote.

"It would be irresponsible to interrupt our important work on the economy with an unnecessary election," Baird said.

Canadian Finance Minister Jim Flaherty acknowledged Sunday there is still work to be done to ensure Canada recovers from the recession and avoids slipping back into trouble, but he said Canada's response has been a model to the rest of the world.

While the U.S. has seen 81 banks fail in 2009 alone, Canada has not experienced the failure of any major financial institution. There has been no crippling mortgage meltdown or banking crisis north of the border, where the financial sector is dominated by five large banks.

President Barack Obama said earlier this year that the United States should "take note" of how Canada has shown itself to be a good manager of its financial system. Prime Minister Stephen Harper has said Canada has strong regulation that encourages a cautious culture in the banks.

Canada's banks avoided the subprime mortgage mess. The banks reported better than expected earnings last week and cited the resilience of the Canadian resale housing market as one of the reasons.

"All countries must take a critical look at their own systems and do what it takes to prevent another financial meltdown. The Canadian system clearly works, and works well," Flaherty said in advance of next week's meeting of G20 finance ministers

While the crisis didn't originate north of the border it did hit Canada hard. The global sell-off of commodities last fall hurt Canada's resource-rich economy. Alberta's once-booming oil sands sector cooled as every major company scrapped or delayed some expansion plans.

Canada's central bank cut its trendsetting interest rate by a quarter point to a record-low 0.25 percent in April and took the unprecedented step of saying it will likely stay there through June 2010.

The Bank of Canada has sliced 4.25 percentage points off the overnight rate since it began easing its policy in December 2007.